It has become fashionable to cite globalisation, offshoring of jobs, technology and other factors for widening income and wealth inequalities, but these factors affect (pdf) Scandinavian countries too. Yet the inequalities there have either declined or risen more slowly. The UK will not be able to reduce inequalities without major changes to its political system.
The UK is a wealthy country, but wealth and income distribution are highly skewed. After excluding the value of housing, 50 per cent of the adult population owns only 1 per cent of the wealth. The median annual pre-tax wage for a full-time adult worker is estimated (pdf) to be £23,764, a rise of 2.9 per cent since 2006. The bottom 10 per cent of the employees receives around £13,000 a year. At the same time, the remuneration of executives at major companies has doubled in the last five years. Though the Labour government has sought to manage poverty and inequality through tax, pension credits and a variety of mean-tested benefits, no political party has put forward any programme to tackle the root causes.
A major reason for the inequalities is the irresponsive political structure. The rot begins with the "majoritarian" electoral system where a minority share of the popular vote is always translated into a majority of the seats in parliament. For example, in 1979 Margaret Thatcher secured 43.9 per cent of the popular vote, which produced a majority of 43 seats in the House of Commons. In 1997, New Labour secured a 179 majority with only 43.2 per cent share of the vote. Under the majoritarian system, political parties have no incentives to accommodate a large part of the public opinion. The system is also available for hire to wealthy elites and the voices of the less well off are easily marginalised.
In contrast, most Scandinavian countries operate a "consensus" system where the seats in parliament closely reflect the proportion of the popular vote. As a result, government building has to accommodate a wide range of opinions and demands from feminists, environmentalists, trade unions and other groups. Such governments are more likely to respond to demands for rights and equitable distribution of income and wealth.
A responsive electoral system is vital because it shapes the development of institutional structures necessary for equitable distribution of income and wealth. In contrast to Scandinavia and even Germany and France, the UK corporate structures lack two-tier boards, works councils and effective trade unions. UK employees are not allowed to elect directors and have no say in how the wealth generated with their own blood and sweat should be distributed.
A study (pdf) by the Organisation for Economic Co-operation and Development stated: "a stronger bargaining power of trade unions is associated with lower relative poverty and income inequality." Yet successive UK governments have sought to weaken trade unions. In 1979, UK trade unions had nearly 13 million (or 55.4 per cent of the workforce) members, but by 1996 it shrank to less than six million before rising to 6.68 million (pdf) in 2005. Former prime minister Tony Blair boasted (pdf)that the "British law is the most restrictive on trade unions in the western world."
To appease the corporate lobby, successive governments have handed control of corporate governance to private elites. The resulting Cadbury, Hampel, Higgs, Greenbury and other committees are happy for fat cats to take more, but have organised the equitable distribution of income off the political agenda. No company is required to disclose the lowest wage, or the average wage paid to women or ethnic minorities. Prime Minister Gordon Brown elevated Digby Jones, an arch opponent of the national minimum wage, to a ministerial position, but there has been no equivalent elevation for anyone representing low-paid workers.
This political capture has had deadly results. In 1975, at the dawn of Thatcherism, 65.1 per cent of the gross domestic product (GDP) went to workers in the shape of salaries and wages. By 1996, it declined to 52.6 per cent though with the introduction of minimum wage and investment in public sector it rose to 55.6 per cent in 2006, still nearly 10 per cent less than in 1975. The shrinking share of the cake has been sliced unevenly with the fat cats taking the biggest share. The result is an inevitable increase in inequality. Nearly 12.7 million people live in poverty (pdf). Those in the affluent areas of the UK can expect to live nearly 10 years longer than those in poorest parts.
All political parties pay lip service, but none have any concrete proposals for securing equitable distribution of income and wealth. Labour won the 1974 general election with a promise to:
" ... bring about a fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families ... Eliminate poverty wherever it exists in Britain ... Make power in industry genuinely accountable to the workers and the community at large ... Achieve far greater economic equality - in income, wealth and living standards ..."
Today, no political party has any programme for securing an equitable distribution of income.
A reform of the electoral system is a necessary precondition to securing an equitable distribution of income and wealth. This needs to be accompanied by democratisation of the workplace, effective trade unions and rights for employees to elect directors and vote on director remuneration.